Fed Holds Rates Under Warsh as Trump Rolls Out New Tariffs

Federal Reserve Chair Kevin Warsh presided over a closely watched two-day policy meeting this week, with markets widely expecting the Federal Open Market Committee to hold interest rates steady even as the Trump administration prepares a new round of tariffs designed to replace the “Liberation Day” duties the Supreme Court struck down as illegal.

A Hawkish Hold, With Dissent in the Room

The FOMC’s July 28–29 meeting — the fifth of eight scheduled gatherings in 2026 — was expected to end with rates unchanged, according to a consensus among Fed watchers reported by U.S. News, though not without disagreement among the twelve committee members. Warsh, who has pledged that the Fed has “no tolerance” for elevated consumer and producer costs, faces a delicate balancing act: a steady labor market and solid GDP arguably justify holding rates, while cooling oil prices — following a pause in US strikes on Iran — have taken some pressure off the inflation outlook, according to TheStreet.

Replacement Tariffs Target 60 Countries

The monetary policy decision lands alongside a parallel fiscal shock. The administration is preparing new import duties of 10% to 12.5% affecting roughly 60 countries and jurisdictions, structured explicitly as replacements for the April 2025 “Liberation Day” tariffs that were ruled illegal by the Supreme Court, according to U.S. News. Independent modelling suggests the stakes are substantial: the Tax Foundation estimates the Trump administration’s tariff programme now represents the largest US tax increase as a share of GDP since 1993, equivalent to roughly $1,500 per household in 2026, while reducing long-run US GDP by an estimated 0.4% before accounting for foreign retaliation.

The Federal Reserve held interest rates steady at its July 28–29, 2026 meeting under new Chair Kevin Warsh, as the Trump administration prepared replacement tariffs of 10–12.5% on roughly 60 countries. The Tax Foundation estimates the tariff programme costs US households about $1,500 in 2026 and cuts long-run GDP by 0.4%.

Research from the Federal Reserve Bank of New York adds a further wrinkle for policymakers: tariff-driven cost increases are still working their way through supply chains, with more pass-through to consumer prices still in the pipeline months after the initial duties took effect — a dynamic that complicates any straightforward reading of near-term inflation data.

Fed Independence Remains an Open Wound

Warsh’s tenure has been shadowed by an unusually public fight over central bank independence. President Trump has publicly needled the Fed’s board, and an active federal court case is weighing whether the administration can remove Fed Governor Lisa Cook, while a separate effort may target Governor Michael Barr, according to Kiplinger’s live coverage of the meeting. Trump has called Warsh “fantastic” while simultaneously criticising the board’s “political” members — a dynamic that leaves the new chair navigating both markets and the administration’s expectations simultaneously.

Markets Weigh Tariffs Against a Cooling Energy Shock

Treasury yields have been volatile heading into the decision: the 10-year yield touched its highest level since January 2025 amid a surge tied to Middle East risk, before easing again as oil prices tumbled on news of a pause in US-Iran hostilities, according to CNBC’s US economy tracker. Import prices, meanwhile, posted a surprise gain in July, with the cost of goods from China reaching its highest level since 2008 — an early signal of the tariff pass-through the New York Fed has flagged.

What Investors Should Watch Next

The immediate market focus shifts to the Fed’s post-meeting statement and Warsh’s press conference for any signal on the committee’s tolerance for tariff-driven price increases layered atop an already-elevated cost environment. The bigger structural question — whether markets can continue to trust the Fed’s independence from the White House amid ongoing governor-removal litigation — is unlikely to be resolved by this meeting alone, and is likely to remain a persistent overhang on long-duration Treasury yields through the rest of 2026.